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A.M. Best Downgrades Credit Ratings of ERAC Group Members

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Besthas downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bbb-” from “bbb+” of the Employers Reassurance Corporation and Union Fidelity Life Insurance Company (both domiciled in Overland Park, KS) (collectively referred to as the ERAC Group). The outlook of the Long-Term ICR has been revised to stable from negative, while the FSR outlook remains stable.

The ratings reflect ERAC Group’s balance sheet strength, which A.M. Best categorizes as weak, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The rating downgrades relate to the recent credit downgrades of the ERAC Group’s parent company, General Electric Company (GE). The ratings of the ERAC Group are supported by the implicit and explicit capital support (evidenced through capital maintenance agreements) provided by GE. In addition, A.M. Best continues to have concerns over the continued low interest rate environment and poor performance in the company’s long-term care (LTC) blocks of business.

The weak balance sheet assessment is reflective of ERAC Group’s continued fairly weak level of risk-adjusted capitalization, as well as significant future LTC reserve increases, which is offset by the considerable implicit and explicit capital support provided under a capital maintenance agreement with GE. ERAC Group’s marginal operating performance has been affected by historical weak earnings trends, as its LTC business remains unprofitable relative to original actuarial expectations, although a positive cash flow is expected with LTC price increases that should drive future earnings growth.

The company’s business profile is limited due to the continued run-off nature of the business, along with the volatile nature that is associated with the majority of LTC business on its books, and the high interest-sensitive reserves related to structured settlements. Overall ERM is appropriate, and is integrated into the GE Capital Group framework. ERAC Group’s risk policy, which receives oversight from its ultimate parent to mitigate deviations, sets certain expectations, such as defined limits on specific risk categories.